10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 3, 2024

-OR-

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number: 001-09769

 

Lands’ End, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

36-2512786

 

 

 

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

1 Lands’ End Lane

Dodgeville, Wisconsin

53595

 

 

 

(Address of principal executive offices)

(Zip Code)

 

(608) 935-9341

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

LE

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of June 3, 2024, the registrant had 31,406,348 shares of common stock, $0.01 par value, outstanding.


Table of Contents

 

LANDS’ END, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MAY 3, 2024

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

1

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

1

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Operations

 

2

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

 

5

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

29

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

 

PART II. OTHER INFORMATION

 

31

 

 

 

 

Item 1.

Legal Proceedings

 

31

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

32

 

 

 

 

Item 5.

Other Information

 

32

 

 

 

 

Item 6.

Exhibits

 

33

 

 

 

 

 

 

Signatures

 

34

 

 


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LANDS’ END, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

13 Weeks Ended

 

(in thousands, except per share data)

 

May 3,
2024

 

 

April 28,
2023

 

Net revenue

 

$

285,471

 

 

$

309,558

 

Cost of sales (exclusive of depreciation and amortization)

 

 

146,491

 

 

 

171,621

 

Gross profit

 

 

138,980

 

 

 

137,937

 

 

 

 

 

 

 

Selling and administrative

 

 

127,401

 

 

 

118,514

 

Depreciation and amortization

 

 

9,005

 

 

 

9,301

 

Other operating expense, net

 

 

341

 

 

 

202

 

Operating income

 

 

2,233

 

 

 

9,920

 

Interest expense

 

 

10,336

 

 

 

12,283

 

Other (income), net

 

 

(88

)

 

 

(187

)

Loss before income taxes

 

 

(8,015

)

 

 

(2,176

)

Income tax benefit

 

 

(1,573

)

 

 

(524

)

NET LOSS

 

$

(6,442

)

 

$

(1,652

)

NET LOSS PER COMMON SHARE

 

 

 

 

 

 

Basic:

 

$

(0.20

)

 

$

(0.05

)

Diluted:

 

$

(0.20

)

 

$

(0.05

)

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

31,439

 

 

 

32,443

 

Diluted weighted average common shares outstanding

 

 

31,439

 

 

 

32,443

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1


Table of Contents

 

 

LANDS’ END, INC.

Condensed Consolidated Statements of Comprehensive Operations

(Unaudited)

 

 

 

13 Weeks Ended

 

(in thousands)

 

May 3, 2024

 

 

April 28, 2023

 

NET LOSS

 

$

(6,442

)

 

$

(1,652

)

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(513

)

 

 

81

 

COMPREHENSIVE LOSS

 

$

(6,955

)

 

$

(1,571

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

2


Table of Contents

 

 

LANDS’ END, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

(in thousands, except per share data)

 

May 3, 2024

 

 

April 28, 2023

 

 

February 2,
2024

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,350

 

 

$

7,332

 

 

$

25,314

 

Restricted cash

 

 

2,489

 

 

 

2,149

 

 

 

1,976

 

Accounts receivable, net

 

 

34,664

 

 

 

38,759

 

 

 

35,295

 

Inventories, net

 

 

288,629

 

 

 

376,062

 

 

 

301,724

 

Prepaid expenses and other current assets

 

 

51,889

 

 

 

45,743

 

 

 

45,951

 

Total current assets

 

 

405,021

 

 

 

470,045

 

 

 

410,260

 

Property and equipment, net

 

 

113,286

 

 

 

126,397

 

 

 

118,033

 

Operating lease right-of-use asset

 

 

22,286

 

 

 

31,878

 

 

 

23,438

 

Goodwill

 

 

 

 

 

106,700

 

 

 

 

Intangible asset

 

 

257,000

 

 

 

257,000

 

 

 

257,000

 

Other assets

 

 

2,514

 

 

 

3,174

 

 

 

2,748

 

TOTAL ASSETS

 

$

800,107

 

 

$

995,194

 

 

$

811,479

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

13,000

 

 

$

13,750

 

 

$

13,000

 

Accounts payable

 

 

108,287

 

 

 

110,097

 

 

 

131,922

 

Lease liability – current

 

 

5,628

 

 

 

5,533

 

 

 

6,024

 

Accrued expenses and other current liabilities

 

 

92,181

 

 

 

88,216

 

 

 

108,972

 

Total current liabilities

 

 

219,096

 

 

 

217,596

 

 

 

259,918

 

Long-term borrowings under ABL Facility

 

 

40,000

 

 

 

100,000

 

 

 

 

Long-term debt, net

 

 

233,087

 

 

 

220,786

 

 

 

236,170

 

Lease liability – long-term

 

 

21,873

 

 

 

32,335

 

 

 

22,952

 

Deferred tax liabilities

 

 

48,620

 

 

 

45,863

 

 

 

48,020

 

Other liabilities

 

 

2,830

 

 

 

3,330

 

 

 

2,826

 

TOTAL LIABILITIES

 

 

565,506

 

 

 

619,910

 

 

 

569,886

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01 authorized: 480,000 shares;
   issued and outstanding:
31,407, 32,460 and 31,433, respectively

 

 

314

 

 

 

325

 

 

 

315

 

Additional paid-in capital

 

 

356,871

 

 

 

362,285

 

 

 

356,764

 

(Accumulated deficit) Retained earnings

 

 

(106,002

)

 

 

29,615

 

 

 

(99,417

)

Accumulated other comprehensive loss

 

 

(16,582

)

 

 

(16,941

)

 

 

(16,069

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

234,601

 

 

 

375,284

 

 

 

241,593

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

800,107

 

 

$

995,194

 

 

$

811,479

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

3


Table of Contents

 

 

LANDS’ END, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

13 Weeks Ended

 

(in thousands)

 

May 3, 2024

 

 

April 28, 2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(6,442

)

 

$

(1,652

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

9,005

 

 

 

9,301

 

Amortization of debt issuance costs

 

 

667

 

 

 

815

 

(Gain)/loss on disposal of property and equipment

 

 

(1

)

 

 

123

 

Stock-based compensation

 

 

1,226

 

 

 

1,083

 

Deferred income taxes

 

 

398

 

 

 

(112

)

Other

 

 

(199

)

 

 

(193

)

Change in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

553

 

 

 

6,244

 

Inventories, net

 

 

12,762

 

 

 

49,604

 

Accounts payable

 

 

(21,257

)

 

 

(57,050

)

Other operating assets

 

 

(5,989

)

 

 

(335

)

Other operating liabilities

 

 

(16,538

)

 

 

(18,583

)

Net cash used in operating activities

 

 

(25,815

)

 

 

(10,755

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Sales of property and equipment

 

 

5

 

 

 

 

Purchases of property and equipment

 

 

(6,736

)

 

 

(12,384

)

Net cash used in investing activities

 

 

(6,731

)

 

 

(12,384

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from borrowings under ABL Facility

 

 

49,000

 

 

 

83,000

 

Payments of borrowings under ABL Facility

 

 

(9,000

)

 

 

(83,000

)

Payments on term loan

 

 

(3,250

)

 

 

(3,438

)

Payments of debt issuance costs

 

 

(528

)

 

 

 

Payments for taxes related to net share settlement of equity awards

 

 

(249

)

 

 

(1,199

)

Purchases and retirement of common stock

 

 

(1,014

)

 

 

(3,781

)

Net cash provided by (used in) financing activities

 

 

34,959

 

 

 

(8,418

)

Effects of exchange rate changes on cash, cash equivalents and restricted cash

 

 

136

 

 

 

(353

)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND
      RESTRICTED CASH

 

 

2,549

 

 

 

(31,910

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH,
      BEGINNING OF PERIOD

 

 

27,290

 

 

 

41,391

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

29,839

 

 

$

9,481

 

SUPPLEMENTAL CASH FLOW DATA

 

 

 

 

 

 

Unpaid liability to acquire property and equipment

 

$

1,480

 

 

$

5,738

 

Income taxes paid

 

$

340

 

 

$

1,315

 

Interest paid

 

$

10,983

 

 

$

13,164

 

Operating lease right-of-use-assets obtained in exchange for lease liabilities

 

$

 

 

$

2,539

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4


Table of Contents

 

 

LANDS’ END, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

 

Common Stock Issued

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at February 2, 2024

 

 

31,433

 

 

$

315

 

 

$

356,764

 

 

$

(99,417

)

 

$

(16,069

)

 

$

241,593

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,442

)

 

 

 

 

 

(6,442

)

Cumulative translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(513

)

 

 

(513

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,226

 

 

 

 

 

 

 

 

 

1,226

 

Vesting of restricted shares

 

 

90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withheld related to net share
      settlement of equity awards

 

 

(31

)

 

 

 

 

 

(249

)

 

 

 

 

 

 

 

 

(249

)

Purchases and retirement of common stock

 

 

(85

)

 

 

(1

)

 

 

(870

)

 

 

(143

)

 

 

 

 

 

(1,014

)

Balance at May 3, 2024

 

 

31,407

 

 

$

314

 

 

$

356,871

 

 

$

(106,002

)

 

$

(16,582

)

 

$

234,601

 

 

 

 

 

Common Stock Issued

 

 

Additional
Paid-in

 

 

(Accumulated Deficit) Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at January 27, 2023

 

 

32,626

 

 

$

326

 

 

$

366,181

 

 

$

31,267

 

 

$

(17,022

)

 

$

380,752

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,652

)

 

 

 

 

 

(1,652

)

Cumulative translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

81

 

 

 

81

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,083

 

 

 

 

 

 

 

 

 

1,083

 

Vesting of restricted shares

 

 

408

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Common stock withheld related to net share
      settlement of equity awards

 

 

(144

)

 

 

 

 

 

(1,199

)

 

 

 

 

 

 

 

 

(1,199

)

Purchases and retirement of common stock

 

 

(430

)

 

 

(4

)

 

 

(3,777

)

 

 

 

 

 

 

 

 

(3,781

)

Balance at April 28, 2023

 

 

32,460

 

 

$

325

 

 

$

362,285

 

 

$

29,615

 

 

$

(16,941

)

 

$

375,284

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5


Table of Contents

 

 

LANDS’ END, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. BACKGROUND AND BASIS OF PRESENTATION

 

Description of Business

 

Lands’ End, Inc. (“Lands’ End” or the “Company”) is a leading digital retailer of solution-based apparel, swimwear, outerwear, accessories, footwear, home products and uniforms. Lands’ End offers products online at www.landsend.com, through third-party distribution channels, our own Company Operated stores and third-party license agreements. Lands’ End also offers products to businesses and schools, for their employees and students, through the Outfitters distribution channel. Lands’ End is a classic American lifestyle brand that creates solutions for life’s every journey. References to www.landsend.com do not constitute incorporation by reference of the information at www.landsend.com, and such information is not part of this Quarterly Report on Form 10-Q or any other filings with the SEC, unless otherwise explicitly stated.

 

Terms that are commonly used in the Company’s Notes to Condensed Consolidated Financial Statements are defined as follows:

 

ABL Facility – Asset-based senior secured credit agreement, providing for a revolving facility, dated as of November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders, as amended to date

 

Adjusted EBITDA – Net income (loss) appearing on the Condensed Consolidated Statements of Operations net of Income tax expense/(benefit), Interest expense, Depreciation and amortization and other significant items

 

ASC – Financial Accounting Standards Board Accounting Standards Codification, which serves as the source for authoritative GAAP, as supplemented by rules and interpretive releases by the SEC which are also sources of authoritative GAAP for SEC registrants

 

Company Operated stores – Lands’ End retail stores in the Retail distribution channel

 

Current Term Loan Facility – Term loan credit agreement, dated as of December 29, 2023, among the Company, Blue Torch Capital, as Administrative Agent and Collateral Agent, and the lenders party thereto

 

Debt Facilities – Collectively, the Current Term Loan Facility and ABL Facility

 

Deferred Awards – Time vesting stock awards

 

EPS – Earnings per share

 

FASB – Financial Accounting Standards Board

 

First Quarter 2024 – The 13 weeks ended May 3, 2024

 

First Quarter 2023 – The 13 weeks ended April 28, 2023

 

Fiscal 2024 – The 52 weeks ending January 31, 2025

 

Fiscal 2023 – The 53 weeks ended February 2, 2024

 

Former Term Loan Facility – Term loan credit agreement, dated as of September 9, 2020, among the Company, Fortress Credit Corp., as Administrative Agent and Collateral Agent, and the lenders party thereto

 

GAAP – Accounting principles generally accepted in the United States

 

LIBOR – London inter-bank offered rate

 

Option Awards – Stock option awards

6


 

Performance Awards – Performance-based stock awards

 

SEC – United States Securities and Exchange Commission

 

SOFR – Secured Overnight Funding Rate

 

Target Shares – Number of restricted stock units awarded to a recipient which reflects the number of shares to be delivered based on achievement of target performance goals

 

Term Loan Adjusted SOFR – SOFR plus adjustments of either (a) 0.11448% for a one-month interest period, (b) 0.26161% for a three-month interest period, or (c) 0.42826% for a six-month interest period

 

Basis of Presentation

 

The Condensed Consolidated Financial Statements include the accounts of Lands’ End, Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated.

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in thousands, except per share data, unless otherwise noted. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Lands’ End Annual Report on Form 10-K filed with the SEC on April 3, 2024.

 

Corporate Restructuring

 

During First Quarter 2024 and the second half of Fiscal 2023, the Company eliminated approximately 10% of its positions in the corporate offices, including the Hong Kong sourcing office in Fiscal 2023. The Company incurred $0.3 million of total corporate restructuring costs, which includes severance and benefit costs, during First Quarter 2024 which was recorded in Other operating expense, net in the Condensed Consolidated Statements of Operations. As of May 3, 2024, approximately $1.2 million of the severance and benefit costs had yet to be paid and is included in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-07 on the Company’s Condensed Consolidated Financial Statement disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) each disaggregated between domestic and foreign. ASU 2023-09 is effective for the annual periods beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-09 on the Company’s Condensed Consolidated Financial Statement disclosures.

 

7


In March 2024, FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements (“ASU 2024-02”), which is intended to simplify the Codification and draw a distinction between authoritative and non-authoritative literature. ASU 2024-02 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently assessing the impact of ASU 2024-02 on the Company’s Condensed Consolidated Financial Statements.

NOTE 3. LOSS PER SHARE

 

The numerator for both basic and diluted EPS is net income (loss) attributable to the Company. The denominator for basic EPS is based upon the number of weighted average shares of the Company’s common stock outstanding during the reporting periods. The denominator for diluted EPS is based upon the number of weighted average shares of the Company’s common stock and common stock equivalents outstanding during the reporting periods using the treasury stock method in accordance with ASC 260, Earnings Per Share. Potentially dilutive securities for the diluted EPS calculations consist of non-vested equity shares of common stock and in-the-money outstanding options where the current stock price exceeds the option strike price.

 

The following table summarizes the components of basic and diluted EPS:

 

 

 

13 Weeks Ended

 

(in thousands, except per share amounts)

 

May 3, 2024

 

 

April 28, 2023

 

Net loss

 

$

(6,442

)

 

$

(1,652

)

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

31,439

 

 

 

32,443

 

Dilutive impact of stock awards

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

31,439

 

 

 

32,443

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

Basic

 

$

(0.20

)

 

$

(0.05

)

Diluted

 

$

(0.20

)

 

$

(0.05

)

 

 

 

 

 

 

Anti-dilutive shares excluded from diluted loss per common share calculation

 

 

1,002

 

 

 

1,189

 

 

Stock awards are considered anti-dilutive based on the application of the treasury stock method or in the event of a net loss.

NOTE 4. OTHER COMPREHENSIVE LOSS

 

Other comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders and is comprised solely of foreign currency translation adjustments. Our foreign subsidiaries use their foreign currency as their functional currency. Functional currency assets and liabilities are translated into U.S. Dollars using exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates during the period. Resulting translation gains and losses are reported in other comprehensive income (loss), until the substantial liquidation of a subsidiary, at which time accumulated transactions gains or losses are reclassified into net income.

 

 

 

13 Weeks Ended

 

(in thousands)

 

May 3, 2024

 

 

April 28, 2023

 

Beginning balance: Accumulated other comprehensive loss
      (net of tax of $
4,271 and $4,525, respectively)

 

$

(16,069

)

 

$

(17,022

)

Other comprehensive (loss) income:

 

 

 

 

 

 

Foreign currency translation adjustments (net of tax of ($203) and ($22), respectively)

 

 

(513

)

 

 

81

 

Ending balance: Accumulated other comprehensive loss
      (net of tax of $
4,068 and $4,503, respectively)

 

$

(16,582

)

 

$

(16,941

)

 

No amounts were reclassified out of Accumulated other comprehensive loss during any of the periods presented.

8


Table of Contents

 

 

NOTE 5. DEBT

 

ABL Facility

 

The Company’s $275.0 million committed revolving ABL Facility includes a $70.0 million sublimit for letters of credit and is available for working capital and other general corporate liquidity needs. The amount available to borrow is the lesser of (1) the Aggregate Commitments of $275.0 million (“ABL Facility Limit”) or (2) the Borrowing Base or Loan Cap which is calculated from Eligible Inventory, Trade Receivables and Credit Card Receivables, all foregoing capitalized terms not defined herein are as defined in the ABL Facility.

The following table summarizes the Company’s ABL Facility borrowing availability:

 

 

 

May 3, 2024

 

April 28, 2023

 

February 2, 2024

(in thousands)

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

ABL Facility limit

 

$

275,000

 

 

 

 

$

275,000

 

 

 

 

$

275,000

 

 

 

Borrowing Base

 

 

181,885

 

 

 

 

 

245,179

 

 

 

 

 

176,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding borrowings

 

 

40,000

 

 

6.67%

 

 

100,000

 

 

6.89%

 

 

 

 

 

Outstanding letters of credit

 

 

8,069

 

 

 

 

 

9,095

 

 

 

 

 

9,070

 

 

 

ABL Facility utilization at end of period

 

 

48,069

 

 

 

 

 

109,095

 

 

 

 

 

9,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABL Facility borrowing availability

 

$

133,816

 

 

 

 

$

136,084

 

 

 

 

$

167,241

 

 

 

 

Long-Term Debt

 

On December 29, 2023, the Company entered into the Current Term Loan Facility which provides borrowings of $260.0 million, the proceeds of which were used to repay all of the indebtedness under the Former Term Loan Facility and to pay fees and expenses in connection with the financing. Origination costs, including a 3% original issue discount of $7.8 million and debt origination fees of $3.2 million, were incurred in connection with entering into the Current Term Loan Facility. The original issue discount and the debt origination fees are presented as a direct deduction from the carrying value of the Current Term Loan Facility and Former Term Loan Facility and are amortized over the term of the loan to Interest expense in the Condensed Consolidated Statements of Operations.

 

The Company’s long-term debt consisted of the following:

 

 

 

May 3, 2024

 

April 28, 2023

 

February 2, 2024

(in thousands)

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

Former Term Loan Facility

 

$

 

 

—%

 

$

240,625

 

 

14.77%

 

$

 

 

—%

Current Term Loan Facility

 

 

256,750

 

 

13.68%

 

 

 

 

—%

 

 

260,000

 

 

13.70%

Less: Current portion of long-term debt

 

 

13,000

 

 

 

 

 

13,750

 

 

 

 

 

13,000

 

 

 

Less: Unamortized debt issuance costs

 

 

10,663

 

 

 

 

 

6,089

 

 

 

 

 

10,830

 

 

 

Long-term debt, net

 

$

233,087

 

 

 

 

$

220,786

 

 

 

 

$

236,170

 

 

 

 

Interest; Fees

 

ABL Facility

 

Effective with the Fourth Amendment to the ABL Facility executed May 12, 2023, the benchmark interest rate was changed from LIBOR to SOFR plus an adjustment of 0.10% for all loans (“ABL Adjusted SOFR”). Loan interest rates are selected at the borrower’s election, is either (1) ABL Adjusted SOFR, or (2) a base rate which is the greater of (a) the federal funds rate plus 0.50%, (b) the one-month ABL Adjusted SOFR rate plus 1.00%, or (c) the Wells Fargo “prime rate”. The borrowing margin for ABL Adjusted SOFR loans is (i) less than $95.0 million, 1.25%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 1.50%, and (iii) greater than or equal to $180.0 million, 1.75%. For base rate loans, the borrowing margin is (i) less than $95.0 million, 0.50%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 0.75%, and (iii) greater than or equal to $180.0 million, 1.00% (“Applicable

9


Borrowing Margin”). The Applicable Borrowing Margin for all loans is based upon the average daily total loans outstanding for the previous quarter. The Fourth Amendment had no material interest rate impact.

 

The ABL Facility fees include (i) commitment fees of 0.25% based upon the average daily unused commitment (aggregate commitment less loans and letter of credit outstanding) under the ABL Facility for the preceding fiscal quarter, (ii) customary letter of credit fees and (iii) customary annual agent fees. As of May 3, 2024, the Company had $40.0 million borrowings outstanding under the ABL Facility.

 

Current Term Loan Facility

 

The interest rates per annum applicable to the loans under the Current Term Loan Facility are based on a fluctuating rate of interest equal to, at the Company’s election, either (1) Term Loan Adjusted SOFR loan (subject to a 2% floor) plus an applicable margin, or (2) an alternative base rate loan plus an applicable margin. The applicable margin is based on the Company’s net leverage and will be, (i) for Term Loan Adjusted SOFR loans, 8.25% per annum if the total leverage ratio is greater than or equal to 2.75:1.00, 8.00% per annum if the total leverage ratio is less than 2.75:1.00 but greater than or equal to 2.25:1.00, and 7.75% per annum if the total leverage ratio is less than 2.25:1.00 and (ii) for base rate loans, 7.25% per annum if the total leverage ratio is greater than or equal to 2.75:1.00, 7.00% per annum if the total leverage ratio is less than 2.75:1.00 but greater than or equal to 2.25:1.00, and 6.75% per annum if the total leverage ratio is less than 2.25:1.00. In each case, the net leverage is determined as of the last day of each applicable measurement period.

 

Customary agency fees are payable annually for the Current Term Loan Facility.

 

Former Term Loan Facility

 

Effective with the First Amendment to the Former Term Loan Facility executed June 22, 2023, the interest rate benchmark changed from LIBOR to Term Loan Adjusted SOFR. The annual interest rate applicable to the loans under the Former Term Loan Facility was based on a fluctuating rate of interest measured by reference to, at the borrower’s election, either (1) a Term Loan Adjusted SOFR rate plus 9.75% or (2) an alternative base rate (which is the greater of (i) the prime rate published in the Wall Street Journal, (ii) the federal funds rate, which shall be no lower than 0.00% plus ½ of 1.00%, or (iii) the one month Term Loan Adjusted SOFR rate plus 1.00% per annum) plus 8.75%.

 

Customary agency fees were paid annually for the Former Term Loan Facility.

 

Maturity; Amortization and Prepayments

The ABL Facility maturity date is July 29, 2026.

 

The Current Term Loan Facility will mature on December 29, 2028, and will amortize at a rate equal to 1.25% per quarter. Depending upon the Company’s Total Leverage Ratio, as defined in the Current Term Loan Facility, mandatory prepayments in an amount equal to a percentage of the Company’s excess cash flows in each fiscal year, ranging from 0% to 75% are required. The Current Term Loan Facility also has typical prepayment requirements for the proceeds of certain asset sales, casualty events and extraordinary receipts. Voluntary prepayment and certain mandatory prepayments made (i) on or before December 29, 2024 would result in a prepayment premium equal to 3% of the principal amount of the loan prepaid plus a yield maintenance fee, (ii) between December 30, 2024 and December 29, 2025 would result in a prepayment premium equal to 2% of the principal amount of the loan prepaid, (iii) between December 30, 2025 and December 29, 2026, would result in a prepayment premium equal to 1% of the principal amount of the loan prepaid, (iv) between December 30, 2026 and December 29, 2027, would result in a prepayment premium equal to 0.5% of the principal amount of the loan prepaid and (v) thereafter no prepayment premium is due.

 

Guarantees; Security

 

All obligations under the Debt Facilities are unconditionally guaranteed by Lands’ End, Inc. and, subject to certain exceptions, each of its existing and future direct and indirect subsidiaries. The ABL Facility is secured by a first priority security interest in certain working capital of the borrowers and guarantors consisting primarily of accounts receivable and inventory. The Current Term Loan Facility is also secured by a second priority security interest in the same collateral, with certain exceptions.

 

The Current Term Loan Facility is also secured by a first priority security interest in certain property and assets, including certain fixed assets such as real estate, stock of subsidiaries and intellectual property, in each case, subject to certain exceptions. The ABL Facility is also secured by a second priority interest in the same collateral, with certain exceptions.

10


 

Representations and Warranties; Covenants

 

Subject to specified exceptions, the Debt Facilities contain various representations and warranties and restrictive covenants that, among other things, restrict Lands’ End, Inc.’s and its subsidiaries’ ability to incur indebtedness (including guarantees), grant liens, make investments, make dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers or change the nature of their business.

 

The Current Term Loan Facility contains financial covenants, including a quarterly maximum total leverage ratio test and a monthly minimum liquidity test.

 

Under the ABL Facility, if excess availability falls below the greater of 10% of the Loan Cap amount or $15.0 million, the Company will be required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0.

 

The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

 

As of May 3, 2024, the Company was in compliance with its financial covenants in the Debt Facilities.

Events of Default

 

The Debt Facilities include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross defaults related to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.

NOTE 6. STOCK-BASED COMPENSATION

 

The Company expenses the fair value of all stock awards over their requisite service period, ensuring that the amount of cumulative stock-based compensation expense recognized at any date is at least equal to the portion of the grant-date fair value of the award that is vested at that date. The Company has elected to adjust stock-based compensation expense for an estimated forfeiture rate for those shares not expected to vest and to recognize stock-based compensation expense on a straight-line basis for awards that only have a service requirement with multiple vest dates.

 

The Company has granted the following types of stock awards to employees at management levels and above, each of which are granted under the Company’s stockholder approved stock plans, other than inducement grants outside of the Company’s stockholder approved stock plans in accordance with Nasdaq Listing Rule 5635(c)(4):

 

Deferred Awards are in the form of restricted stock units and only require each recipient to complete a service period for the awards to be earned. Deferred Awards generally vest over three years. The fair value of Deferred Awards is based on the closing price of the Company’s common stock on the grant date. Stock-based compensation expense is recognized ratably over the service period and is reduced for estimated forfeitures of those awards not expected to vest due to employee turnover.
Performance Awards are in the form of restricted stock units and have, in addition to a service requirement, financial performance criteria and/or stock performance criteria that must be achieved for the awards to be earned. For the Performance Awards granted in Fiscal 2024, a portion have financial performance criteria and a portion have stock performance criteria. The Performance Awards granted in Fiscal 2023 are also subject to a relative total shareholder return (“TSR”) modifier which is based on the Company’s total return to stockholders over the measurement period relative to a custom peer group. Certain Performance Awards granted in Fiscal 2024 vest up to 100% of the specified number of shares, contingent upon the Company’s common stock achieving a specified average per share closing stock price over a specified number of trading days, and other Performance Awards granted in Fiscal 2024 vest based on financial performance criteria. For Performance Awards with financial performance criteria, the Target Shares earned can range from 50% to 200% (such result, the “Earned Shares”) once minimum thresholds have been reached and depend on the achievement of certain financial measures for the cumulative period comprised of three-consecutive fiscal years beginning with the fiscal year of the grant date. The Fiscal 2023 Performance Award TSR modifier can result in an adjustment of 75% to 125% of the Earned Shares, subject to an overall cap of 200% and a modifier limitation to 100% in the event TSR is negative. For Fiscal 2024 Performance Awards with stock performance criteria, the Target Shares earned can range from 0% to 100%

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based on the Company’s highest average per share common stock closing stock price measured over any 20 consecutive trading-day period for the cumulative period comprised of three-consecutive fiscal years beginning with the fiscal year of the grant date. Performance Awards are also subject to limitations under the Company’s stockholder approved stock plans. The applicable percentage of the Target Shares, as determined by financial performance or stock price performance, vest after the completion of the applicable three-year performance period and upon determination of achievement of the performance measures by the Compensation Committee of the Board of Directors, and unearned Target Shares are forfeited. The fair value of the Performance Awards granted prior to Fiscal 2023, as well as the portion of the Fiscal 2024 Performance Awards with financial performance criteria, are based on the closing price of the Company’s common stock on the grant date. For the portion of the Performance Awards granted in Fiscal 2024 with stock performance criteria and the Performance Awards granted in Fiscal 2023 with a relative TSR modifier, the grant date fair value is based on the Monte Carlo simulation model. Stock-based compensation expense, including awards with market conditions, is recognized ratably over the related service period, reduced for estimated forfeitures of those awards not expected to vest due to employee turnover and adjusted based on the Company’s estimate of the percentage of the aggregate Target Shares expected to be earned. The Company accrues for Performance Awards on a 100% payout unless it becomes probable that the outcome will be significantly different, or the performance can be accurately measured.
Option Awards provide the recipient with the option to purchase a set number of shares at a stated exercise price over the term of the contract, which is ten years for all Option Awards currently outstanding. Options are granted with a strike price equal to the stock price on the date of grant and vest over the requisite service period of the award. The fair value of each Option Award is estimated on the grant date using the Black-Scholes option pricing model.

 

The following table provides a summary of the Company’s stock-based compensation expense, which is included in Selling and administrative expense in the Condensed Consolidated Statements of Operations:

 

 

 

13 Weeks Ended

 

(in thousands)

 

May 3, 2024

 

 

April 28, 2023

 

Deferred awards

 

$

922

 

 

$

979

 

Performance awards

 

 

200

 

 

 

 

Option awards

 

 

104

 

 

 

104

 

Total stock-based compensation expense

 

$

1,226

 

 

$

1,083

 

 

Deferred Awards

 

The following table provides a summary of the Deferred Awards activity for the 13 weeks ended May 3, 2024:

 

 

 

Deferred Awards

 

(in thousands, except per share amounts)

 

Number of
Shares

 

 

Weighted Average
Grant Date Fair Value
per Share

 

Unvested Deferred Awards as of February 2, 2024

 

 

959

 

 

$

11.44

 

Granted

 

 

305

 

 

 

11.32

 

Vested

 

 

(90

)

 

 

25.69

 

Forfeited or expired

 

 

(45

)

 

 

11.14

 

Unvested Deferred Awards as of May 3, 2024

 

 

1,129

 

 

$

10.28

 

 

Total unrecognized stock-based compensation expense related to unvested Deferred Awards was approximately $8.0 million as of May 3, 2024, which is expected to be recognized ratably over a weighted average period of 2.3 years. The total fair value of Deferred Awards vested during the 13 weeks ended May 3, 2024 and April 28, 2023 was $2.3 million and $5.0 million, respectively. The Deferred Awards granted to employees during the 13 weeks ended May 3, 2024 vest over a period of three years.

 

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Performance Awards

 

The following table provides a summary of the Performance Awards activity for the 13 weeks ended May 3, 2024:

 

 

 

Performance Awards

 

(in thousands, except per share amounts)

 

Number of
Shares

 

 

Weighted Average
Grant Date Fair Value
per Share

 

Unvested Performance Awards as of February 2, 2024

 

 

607

 

 

$

13.14

 

Granted

 

 

264

 

 

 

9.68

 

Change in estimate - performance

 

 

(57

)

 

 

29.95

 

Vested

 

 

 

 

 

 

Forfeited or expired

 

 

(13

)

 

 

12.87

 

Unvested Performance Awards as of May 3, 2024

 

 

801

 

 

$

10.82

 

 

Total unrecognized stock-based compensation expense related to unvested Performance Awards was approximately $4.4 million as of May 3, 2024 which is expected to be recognized ratably over a weighted average period of 2.5 years. The Performance Awards granted to employees during the 13 weeks ended May 3, 2024 vest, if earned, after completion of the applicable three-year performance period.

 

Option Awards

 

The following table provides a summary of the Option Awards activity for the 13 weeks ended May 3, 2024:

 

 

 

Option Awards

 

(in thousands, except per share amounts)

 

Number of
Shares

 

 

Weighted Average
Grant Date Fair Value
per Share

 

Option Awards outstanding as of February 2, 2024

 

 

511

 

 

$

16.08

 

Granted

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Expired

 

 

(294

)

 

 

18.10

 

Option Awards outstanding as of May 3, 2024

 

 

217

 

 

$

13.34

 

 

The following table provides a summary of information about the Option Awards vested and expected to vest during the contractual term, as well as Option Awards exercisable as of May 3, 2024:

 

(in thousands, except contractual life and exercise price amounts)

 

Option Awards

 

 

Weighted
Average
Remaining Contractual Life (Years)

 

 

Weighted
Average
Exercise Price

 

 

Aggregate Intrinsic Value

 

Option Awards vested and expected to vest

 

 

217

 

 

 

7.26

 

 

$

13.34

 

 

$

568

 

Option Awards exercisable

 

 

91

 

 

 

5.55

 

 

$

16.84

 

 

$

142

 

 

Total unrecognized stock-based compensation expense related to Option Awards was approximately $0.6 million as of May 3, 2024, which is expected to be recognized over a weighted average period of 1.6 years.

NOTE 7. STOCKHOLDERS’ EQUITY

 

Share Repurchase Program

 

On June 28, 2022, the Company announced that its Board of Directors authorized the Company to repurchase up to $50.0 million of the Company’s common stock through February 2, 2024 (the “2022 Share Repurchase Program”). Under the 2022 Share Repurchase Program, the Company could repurchase its common stock through open market purchases, in privately negotiated transactions, or by other means in accordance with federal securities laws, including Rule 10b-18 of the Exchange Act. The amount and

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timing of purchases were determined by the Company’s management depending upon market conditions and other factors and at times were made pursuant to a Rule 10b5-1 trading plan. The 2022 Share Repurchase Program expired on February 2, 2024.

 

On March 15, 2024, the Company announced that its Board of Directors authorized the Company to repurchase up to $25.0 million of the Company’s common stock through March 31, 2026 (the “2024 Share Repurchase Program”). Under the 2024 Share Repurchase Program, the Company may repurchase its common stock through open market purchases, in privately negotiated transactions, or by other means in accordance with federal securities laws, including Rule 10b-18 of the Exchange Act. The amount and timing of purchases will be determined by the Company’s management depending upon market conditions and other factors and may be made pursuant to a Rule 10b5-1 trading plan. The 2024 Share Repurchase Program may be suspended or discontinued at any time. As of May 3, 2024, additional purchases of up to $24.0 million could be made under the 2024 Share Repurchase Program. All repurchases are subject to compliance with the Current Term Loan Facility which imposes a per fiscal year limitation on share repurchases.

The following table summarizes the Company’s share repurchases for First Quarter 2024 (under the 2024 Share Repurchase Program) and First Quarter 2023 (under the 2022 Share Repurchase Program):

 

 

 

13 Weeks Ended

 

(Shares and $ in thousands except average per share cost)

 

May 3, 2024

 

 

April 28, 2023

 

Number of shares repurchased

 

 

85

 

 

 

430

 

Total cost

 

$

1,013

 

 

$

3,772

 

Average per share cost

 

$

11.88

 

 

$

8.77

 

 

The Company retired all shares that were repurchased through the 2024 Share Repurchase Program and the 2022 Share Repurchase Program during the 13 weeks ended May 3, 2024 and April 28, 2023, respectively. In accordance with the FASB ASC 505—Equity, the par value of the shares retired was charged against Common stock and the remaining purchase price was allocated between Additional paid-in capital and (Accumulated deficit) Retained earnings. The portion charged against Additional paid-in capital is determined based on the Additional paid-in capital per share amount recorded in the initial issuance of the shares with the remaining to (Accumulated deficit) Retained earnings. Shares purchased at a price less than that of initial issuance is charged only against Additional paid-in capital. For the shares retired during the 13 weeks ended May 3, 2024 and April 28, 2023, $0.1 million and no amount, respectively, was charged to (Accumulated deficit) Retained earnings. In addition, the total cost of the broker commissions is charged directly to (Accumulated deficit) Retained earnings.

NOTE 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following:

 

(in thousands)

 

May 3, 2024

 

 

April 28, 2023

 

 

February 2, 2024

 

Deferred gift card revenue

 

$

35,119

 

 

$

34,222

 

 

$

35,604

 

Accrued employee compensation and benefits

 

 

17,900

 

 

 

15,204

 

 

 

28,449

 

Reserve for sales returns and allowances

 

 

16,886

 

 

 

17,755

 

 

 

21,560

 

Deferred revenue

 

 

9,340

 

 

 

6,019

 

 

 

4,314

 

Accrued property, sales and other taxes